Financial Stability Fund must be operationalised soon to support banks

Banks in the country have relatively been stable following the financial sector clean-up which saw them increase their stated capitals to GH¢400 million.

However, the Domestic Debt Exchange Programme (DDEP), undertaken by the government on account of the country’s poor financial standing, nearly wiped out all the banks’ profitability, with 16 banks recording significant losses at the end of the 2022 financial year

Under the DDEP, the government swapped its outstanding domestic-currency bonds for 12 new bonds with reduced coupon rates and longer tenors, and this impaired the assets of all the banks, some of which had as much as 50 per cent exposure in government bonds.

Although the banks have made a rebound in the first half of 2023 by recording profits, experts have cautioned that the banks would record losses again in 2023 when the full results are audited.

This is because some of the DDEP losses were deferred to 2023 for recognition in the books of banks.

Addressing the media at the recent Monetary Policy Committee press conference, the Governor of the Bank of Ghana (BoG), Dr Ernest Addison, said data submitted by banks for the first half of 2023 reflected the lingering effects of the DDEP, notwithstanding the strong rebound in profitability.

The heavy losses suffered by the banks and the financial services industry in general have had an impact not only on the banks’ profitability but also their capital and reserves adequacy ratios.

For many experts, it is the forbearance provided by the central bank that has kept the banks on their feet, for which many applaud the Governor and his team.

A major policy initiative to shore up the liquidity and capital of the banks due to the lingering effects of the DDEP is the proposed Financial Sector Stability Fund to support the banks and financial sector as a whole.

The World Bank has committed to support the establishment of the fund with US$250 million.

The government is also in discussions with the African Development Bank (AfDB) for an additional US$100 million to support the fund.

The government recently hinted that it had so far raised US$750 million for the operationalisation of the fund out of the intended target of US$1.5 billion.

All these efforts reflect the fact that the financial sector has been under stress and there is, therefore, an urgent need to provide institutions with the financial resources needed to bring them back to healthy life.

Indeed, a key condition under Ghana’s programme with the IMF is for the government, through the Central Bank, to submit to the IMF the recapitalisation plans of banks by the end of September.

The next logical step is a roadmap on how banks can access the pledged funding to get themselves back to doing the business of lending to the productive sector of the economy.

Given the exigencies of the times we find ourselves in currently, the Daily Graphic is of the view that the government should practicalise this fund within the shortest possible time.

As the Finance Minister prepares to appear before the Parliament to fulfil his statutory mandate of presenting a mid-year budget review, many financial experts will be looking for the HOW with regard to getting the Stability Fund off the ground.

The Daily Graphic has every reason to trust and be confident that the authorities would expedite action on this front, as the urgency of the current financial stress levels is certainly not lost on them.

An even more convincing case for the speedy operationalisation of the fund is the general economic challenges facing the country.

A robust financial sector, one with the necessary capital and liquidity, will help relieve the financial crunch businesses are feeling.

Additionally, a sound financial sector will take us to the days of low interest rates that can spur the growth of the economy.

The banks have learnt the harsh reality that government-dated securities are no longer risk-free and that their surest bet is the private sector.

The private sector can, however, thrive where the banks have the requisite financial base to support SMEs as well as big-ticket projects that have the potential to propel the country beyond the current economic challenges.